MasterCard Inc.

MasterCard Incorporated (MasterCard) is a global payment solutions company that provides a variety of services in support of the credit, deposit access (debit), electronic cash and automated teller machine (ATM) payment card programs, travelers check programs and related payment programs of over 25,000 financial institutions that are its customers. Through its three-tiered business model as franchisor, processor and advisor, the Company develops and markets payment solutions, processes payment transactions, and provides consulting and information services to its customers and merchants. The Company manages a family of payment card brands, including MasterCard, MasterCard Electronic, Maestro and Cirrus, which it licenses to its customers. The Company conducts its business principally through MasterCard's principal operating subsidiary, MasterCard International Incorporated. In January 2009, the Company acquired Orbiscom Ltd.

Executive Pay

Shareholders and their advocates have increasingly viewed the escalation in executive compensation with concern and sometimes anger. In 2007 and 2008, numerous proxy resolutions were introduced to address the subject. Congress held several hearings on excessive pay and heard calls for action.

The burgeoning ire has two roots. For one thing, toward the end of 2006 the Securities and Exchange Commission set tighter rules for corporate proxies requiring more information about the methods used to compile pay packages for top management. But by early 2008, as many proxies came in with a maximum of verbiage masking a minimum of information, some shareholders rebelled.

The sinking economy also stoked shareholder discontent -- especially when executive pay rose even as share prices plummeted. It was hard to find a link between pay and performance; indeed, often the opposite was true. A study by Equilar, a compensation research firm, showed that even as the number and value of performance-based bonuses dropped in 2007, the value and prevalence of discretionary bonuses — ones not tied to performance at all — were up.

And earned or not, paychecks remain high. The average overall compensation in 2007 for chief executives at 200 large companies that had filed proxies by the following March 28 approached $12 million. — Claudia Deutsch (April 4, 2008)

Lawrence H. Summers

Lawrence H. Summers, former chief economist at the World Bank and the president of Harvard University from 2001 to 2006, is the director of the National Economic Council for the Obama administration.

He was treasury secretary from 1999 until the end of the Clinton administration. Known equally for his brilliance and his blunt manner, Mr. Summers has a deep understanding of global economic issues, at a time when the American mortgage crisis has leaped borders to become a worldwide contagion.

"In the current circumstances, the case for fiscal stimulus — policy actions that increase short-term deficits — is stronger than at any time in my professional lifetime," he wrote in his monthly column in The Financial Times in September. "Unemployment is now almost certain to increase — probably to the highest levels observed in a generation."

His tenure at Harvard was not always a calm one. His aggressive personal style and sharp-edged remarks — including an observation that women might lack an intrinsic aptitude for math and science — provoked a bitter clash with the faculty, forcing his resignation after five years. Though Mr. Summers apologized for the remark about women, women’s groups were expected to object if he was nominated for a cabinet position.

After leaving Harvard, he turned his attention back to economics, making his debut as a monthly Financial Times columnist with a column titled “The Global Middle Cries Out for Reassurance.” He has said that dealing with this anxiety — making globalization work for the masses — has become the central economic issue of the day.

Born Nov. 30, 1954, Mr. Summers graduated from M.I.T. and earned a Ph.D. at Harvard. He married a Harvard English professor, Elisa New, in 2005, and has three children with his first wife, Victoria Perry.

Federal Deposit Insurance Corporation

In 1983, the Federal Deposit Insurance Corporation celebrated its 50th anniversary by issuing a history that began with this passage:

" 'On March 3 banking operations in the United States ceased. To review at this time the causes of this failure of our banking system is unnecessary. Suffice it to say that the government has been compelled to step in for the protection of depositors and the business of the nation.'

"As President Franklin D. Roosevelt spoke these words to Congress on March 9, 1933, the nation's troubled banking system lay dormant. More than 9,000 banks had ceased operations between the stock market crash in October 1929 and the banking holiday in March 1933. The economy was in the midst of the worst economic depression in modern history.

"Out of the ruins, birth was given to the FDIC three months later when the President signed the Banking Act of 1933. Opposition to the measure had earlier been voiced by the President, the Chairman of the Senate Banking Committee and the American Bankers Association. They believed a system of deposit insurance would be unduly expensive and would unfairly subsidize poorly managed banks. Public opinion, however, was squarely behind a federal depositor protection plan.

"By any standard, deposit insurance was an immediate success in restoring stability to the system. The bank failure rate dropped precipitously, with only nine insured banks failing during 1934. During the 30-year period beginning with World War II,the workings of the economy and the conservative behavior of bank regulators and the banking industry created a situation that posed few risks to the financial system, and the importance of deposit insurance in maintaining stability declined. Indeed, Wright Patman, the then-Chairman of the House banking committee, argued in a speech in 1963 that there were too few bank failures - that we had moved too far in the direction of bank safety. ''

In 1997, a follow up volume had a very different focus -- "the extraordinary number of bank failures in the 1980s and early 1990s.'' The wave of failures that came to be know as the savings and loan crisis and led to a reshaping of the F.D.I.C. and new attention to the importance of tight regulation of banks holding federally insured deposits.

Changes in the marketplace and in the legal landscape kept banking in turmoil, but few banks were failing. The collapse of the housing market and the credit crunch that followed in 2007 raised new worries, however, and by the spring of 2008 the F.D.I.C. was warning that the banking sector was facing alarming new strains. In July 2008 Indymac, a California-based bank, was seized by the agency as its mortgage-related losses mounted. Suddenly, the notices posted in financial institutions that they are "F.D.I.C. insured'' -- meaning that deposits are covered up to $100,000 -- were of interest again.

Home Equity Loans

Home equity lines of credit and home equity loans allow homeowners to borrow against the value of their homes. In recent years, as housing prices soared, this tax-deductible borrowing exploded in popularity.

These days, however, many homeowners now owe more on their houses than the houses are worth, and home equity borrowing standards are tightening. Find out how you can tap into home equity with these articles and tools. MANY homeowners who have taken out home equity lines of credit have learned in recent months that these loans are not as useful as they initially seemed.

Lenders are struggling to minimize risk, and because they are especially at risk to lose money on residential real estate loans, they are cutting back on homeowners’ credit lines or freezing them altogether.

Many people who took out home equity credit lines of $100,000 on their home and used only, say, $20,000 have received letters informing them they can no longer borrow additional money, just as their stock portfolios are dwindling. The banks’ reasoning, typically, is that area property values are dropping, so the equity does not actually exist.

To challenge the bank’s valuation of a home, a homeowner has little recourse but to spend his or her own money to order an appraisal — a potentially costly and futile approach.

But a new countermeasure is emerging: take out the money before the bank puts it out of reach. In this strategy, borrowers draw the maximum amount even if they don’t need it, then place the cash in a liquid, and safe, investment vehicle.

“I categorize this as liquidity protection,” said Oded Ben-Ami, a senior loan officer with the Sterling National Mortgage Company, based in Great Neck, N.Y.

Mr. Ben-Ami said he had suggested to mortgage clients that they consider drawing down the maximum amount possible from their home equity credit lines.

Which leads to a question: where to put the money?

Home equity credit lines usually carry interest rates equal to or slightly lower than the prime lending rate, which banks charge their best customers. Last week, that rate fell to 4 percent as the government looked to stimulate the economy.

Those who withdraw their home equity should consider putting the cash into a certificate of deposit, a savings account or a money-market account, Mr. Ben-Ami said.

These financial instruments are typically insured by the Federal Deposit Insurance Corporation. Borrowers can withdraw the money on short notice and pay no penalties in the case of savings or money market accounts, or marginal penalties for early withdrawals from C.D.’s. (Unlike money market accounts, money market funds are not protected if the depository fails.)

Short-term liquidity is a key advantage, as borrowers may well be using their credit lines for college tuition bills or as emergency funds if they lose a job or face a major home repair.

Interest rates paid by C.D.’s were at least 3 percent last month, Mr. Ben-Ami said. “So on an equity line of $100,000, the annual cost of this strategy is approximately $1,000” — the difference between a cost of 4 percent and income of 3 percent, he said.

“The question then is, is it worth it to you to pay $1,000 a year to ensure $100,000 worth of liquidity against the worst of circumstances? For many people, the answer is yes.”

There are some risks for borrowers who follow this approach. First, if the value of a home drops significantly and the borrowers have spent the cash from their equity line, they can end up owing more money than their property is worth. (In industry parlance, the borrower is then “under water” or “upside down.”)

The prospect of easy money is also a temptation that some borrowers will find difficult to resist. But for those with enough self-restraint not to spend more than they need, withdrawing the full credit line may be easier than having a credit line rescinded and then finding another bank.

Federal National Mortgage Association (Fannie Mae)

Fannie Mae is the nation’s largest mortgage buyer and a financial juggernaut that affects the lives of tens of millions of home buyers. It was taken over by the federal government on Sept. 8, 2008, along with Freddie Mac, as the two mortgage giants struggled with deep losses and investors lost confidence in the pair.

Fannie Mae was created during the Depression to make sure that sufficient funds were available to mortgage lenders, then rechartered by Congress in 1968 as a publicly traded company. Fannie Mae, like Freddie Mac, which was created by Congress in 1970, buys mortgages from lending institutions and then either hold them in investment portfolios or resell them as mortgage-backed securities to investors.

The two companies play a vital role in providing financing for the housing markets, but have struggled in recent years. After significant accounting problems, the companies since 2004 were required to hold 30 percent more capital than the minimum previously required, in effect capping their ability to purchase mortgages.

As the housing market has soured, both companies reported steep losses. But the mortgage meltdown also made the companies more important. When the credit markets seized up, Fannie and Freddie regained their central role in mortgage finance after losing significant market share to investment banks during the housing boom. They issued most of mortgage securities sold in the last six months, because investors have lost confidence in deals put together by big investment banks.

In February, federal regulators announced that they were easing some restrictions on lending by Fannie and Freddie. Then on March 19, 2008, the federal government announced that it was easing those restrictions in an effort to calm the turmoil afflicting the mortgage markets. Officials said the change could allow the two companies to invest $200 billion more in mortgages.

But on July 13, even as top officials continued to insist that the companies had adequate cash to weather the current financial storm, the Bush administration asked Congress to approve a sweeping rescue package that would empower officials to inject billions of federal dollars into the companies through investments and loans.

And the government did just that in early September, when the Treasury secretary, Henry M. Paulson Jr., announced the takeover over of Fannie and Freddie after advisers poring over the companies’ books concluded that Freddie’s accounting methods had overstated its capital cushion. The move to place the companies into a conservatorship also grew out of concern among foreign investors that the companies’ debt might not be repaid.

The rescue represented an extraordinary federal intervention in private enterprise and could become one of the most expensive in history. The plan commits the government to provide as much as $100 billion to each company to backstop any shortfalls in capital. It enables the Treasury to ultimately buy the companies outright at little cost. It also eliminates dividend payments while protecting the principal and interest payments on the debt, now held by foreign central banks, financial institutions, pension funds and others.

Eventually, under the plan, both companies will shrink their portfolios. In addition, the government plans to buy significant amounts of their mortgage-backed securities on the open market.

Credit Scores: What You Need to Know

Because of the economic turmoil, consumers are having an increasingly hard time getting loans. How lenders view your creditworthiness is critical to determining how you live your life. Luckily, your credit score is something you can control. It's a good idea to focus on improving it, and this section provides advice on how to do that. You may not have checked your credit score lately, but there’s a good chance someone else has.

If you have applied for a mortgage or a loan — or even received a credit card offer in the mail — someone accessed that three-digit number to help determine the amount you can borrow and the interest you’ll owe on it.

So what goes into this all-important score? And how can you make sure you’ve got a good one?

The term credit score usually refers to your FICO score, a number based on a formula developed by the Fair Isaac Corporation. Fair Isaac looks at a summary of all your credit accounts and payment history. If you’ve got a mortgage, a MasterCard or a Macy’s account, it will be included in the report, as will late or missed payments. FICO scores range from 300 to 850, and Fair Isaac calculates them for each of the three big credit-reporting agencies: Equifax, Experian and TransUnion. That’s one reason why your FICO score with each may differ slightly. Generally speaking, the higher your score, the more money you can borrow and the less you’ll pay for the loan.

Here’s how your score is determined:

¶ 35 percent is determined by your payment history. Do you regularly pay your bills or fines on time to any creditor that submits your information to the credit bureau? Even unpaid library fines, medical bills or parking tickets may appear here.

¶ 30 percent is based on the amounts you owe each of your creditors, and how that compares with the total credit available to you or the total loan amount you took out. If you’re maxing out your credit cards, your score may suffer.

¶ 15 percent is based on the length of your credit history, both how long you’ve had each account and how long it’s been since you had any activity on those accounts. The fewer and older the accounts, the better (assuming you’ve made timely payments).

¶ 10 percent is based on how many accounts you’ve recently opened compared with the total number of your accounts, as well as the number of recent inquiries on your report made by lenders to whom you’ve applied for credit. Your score can drop if it looks as if you’re seeking several new sources of credit — a sign that you may be in financial trouble. (If a lender initiates an inquiry about your credit report without your knowledge, though, it should not affect your score.) Shopping around for an auto loan or mortgage shouldn’t hurt, if you keep your search to six weeks or less. But every inquiry you trigger when you apply for a credit card can affect your score, says Craig Watts, a spokesman for Fair Isaac. So be selective.

¶ The final 10 percent is determined by the types of credit used. Having installment debt — like a mortgage, in which you pay a fixed amount each month — demonstrates that you can manage a large loan. But how you handle revolving debt, like credit cards, tends to carry more weight since it’s seen as more predictive of future behavior. (You can pay off the balance each month or just the minimum, for example, charge to the limit of your cards or rarely use them.)

For the best rates on a loan or credit card, you want a score that’s above 700, at least. To achieve that, make sure to pay all your bills on time. It’s also a good idea to have at least one credit card you plan to use for a long time, but not too many. Keep a low balance — generally less than one-third of your total credit limit. Of course, it’s best to pay off your balance entirely each month. And stay on top of the information in your reports.

You can get a free copy of your credit report from each of the three major credit agencies once a year. Be sure to order it through annualcreditreport.com, the only authorized online site under federal law. If you notice information that’s inaccurate, you can submit a request for removal online at Equifax, , Experian or TransUnion. Or submit your request by mail. Be sure to specify what information you think is inaccurate and why, and include any documents that support your argument. Ask in writing that the information be corrected or removed from your report. By law, the bureaus must investigate your complaint, usually within 30 days, and give you a response in writing (or via e-mail, if your request was made online) and a free copy of your report, if the information is changed as a result. Your score should reflect that change shortly after.

To see your actual score, you’ll generally have to pay. You can go through Equifax, Experian or TransUnion directly, but be aware that the score you order may be one developed by the agencies themselves, like the TransUnion TransRisk New Account Score, Experian Plus or VantageScore. These are different than the FICO scores lenders generally use when they evaluate your loan applications. Myfico.com offers two reasonably priced options on its site. The $15.95 FICO Standard package (as of December 2008) gives you 30-day access to one FICO score and a credit report from one of the three major credit agencies. The $47.85 FICO Credit Complete package gives you 30-day access to your FICO scores and credit reports from all three major agencies. Myfico.com and other sites also offer services that monitor your score and report for a monthly fee (ranging from about $4.95 a month for myFico’s quarterly report to $6.65 a month for TransUnion’s Credit Monitoring Service).

Whether you need to monitor your credit that often is debatable. For most, a close look at the free annual reports from each bureau is probably enough. But if you plan to apply for a loan or credit card, check your score and report at least a couple of months beforehand. Not only will you be aware of how creditworthy you are, you’ll also have time to remove any errors you spot and make sure your score reflects the changes before you fill out any applications.

Freddie Mac

Freddie Mac, a publicly traded company that operates under a federal charter, is the nation’s second-largest mortgage buyer. Along with its larger rival, Fannie Mae, Freddie Mac was taken over by the federal government on Sept. 8, 2008, as it faced steepening losses, new questions about its accounting and a flight by investors.

Freddie Mac and Fannie Mae buy mortgages from lending institutions and then either holds them in investment portfolios or resells them as mortgage-backed securities to investors. The two companies play a vital role in providing financing for the housing markets.

As the housing market soured, both companies reported steep losses. But the mortgage meltdown also made the companies more important. When the credit markets seized up, Fannie and Freddie regained their central role in mortgage finance after losing significant market share to investment banks during the housing boom. They issued most of mortgage securities sold in the first half of 2008, after investors lost confidence in deals put together by big investment banks.

Read More...

In February 2008, federal regulators announced that they were easing some restrictions on lending by Fannie and Freddie. Then on March 19, the federal government announced that it was easing those restrictions in an effort to calm the turmoil afflicting the mortgage markets. Officials said the change could allow the two companies to invest $200 billion more in mortgages.

But on July 13, even as top officials continued to insist that the companies had adequate cash to weather the current financial storm, the Bush administration asked Congress to approve a sweeping rescue package that would empower officials to inject billions of federal dollars into the companies through investments and loans.

And the government did just that in early September, when the Treasury secretary, Henry M. Paulson Jr., announced the takeover of Fannie and Freddie after advisers poring over the companies’ books concluded that Freddie’s accounting methods had overstated its capital cushion. The move to place the companies into a conservatorship also grew out of concern among foreign investors that the companies’ debt might not be repaid.

The rescue represented an extraordinary federal intervention in private enterprise and could become one of the most expensive in history. The plan commits the government to provide as much as $100 billion to each company to backstop any shortfalls in capital. It enables the Treasury to ultimately buy the companies outright at little cost. It also eliminates dividend payments while protecting the principal and interest payments on the debt, now held by foreign central banks, financial institutions, pension funds and others. Eventually, under the plan, both companies will shrink their portfolios. In addition, the government plans to buy significant amounts of their mortgage-backed securities on the open market.

Federal Reserve System

The Federal Reserve, through its power to raise and lower interest rates, exercises more influence over economic growth and the level of employment than any other government entity. That unusual role dates from the 1970s, when the executive branch and Congress pulled back from the use of fiscal tools — vast New Deal spending and targeted tax cuts — as a means of regulating prosperity.

Read More...

President Woodrow Wilson signed the Federal Reserve Act on Dec. 23, 1913, creating a seven-member board of governors, including the Fed chairman, and 12 regional banks — a structure collectively known as the Federal Reserve System. The governors are appointed by the president and approved by Congress; the regional bank presidents are selected by leaders of their communities, particularly bankers.

Private banks controlled the flow of credit and thus interest rates in the late 19th and early 20th centuries, and farmers, the backbone of the populist movement, complained that the big Eastern banks often starved them of credit at critical moments. Populists called for direct access to credit, without the banks as intermediaries. That did not happen.

The Federal Reserve System was a compromise. The banks would remain the lenders to the public, but the Fed would control the supply of funds on which the banks depended to make loans. Injecting more money into the banking system put downward pressure on interest rates, while its opposite, restricting the supply of potential credit, pushed up rates. The regional banks were intended to help make the flow of credit even across the country.

Through various refinements over the years, this “open market” operation, as it was called, has been at the heart of the Fed’s power. The interest rate that results is called the federal funds rate. In turn, the interest that banks and other lenders charge for mortgages and for various forms of commercial and consumer credit fluctuate with the federal funds rate. As a supplement, to assure an even flow of available credit, commercial banks in various parts of the country can borrow directly from the Fed at the nearest regional bank, using the so-called discount window. The discount rate is linked to the federal funds rate.

The federal funds rate is set by the Fed’s Open Market Committee, composed of the chairman, currently Ben S. Bernanke, the six other governors, and five of the 12 regional bank presidents, on a rotating basis. The committee meets at Fed headquarters in Washington every six weeks or so.

The Fed’s chairman, currently Ben S. Bernanke and before him Alan Greenspan and Paul A. Volcker, dominates Open Market operations. Their main thrust has been to limit inflation, even at the risk of a recession — although they have cut rates when the nation seemed in danger of one, as the Bernanke Fed has recently done.

Troubled Asset Relief Program

On Sept. 19, 2008, Treasury Secretary Henry M. Paulson Jr. proposed a sweeping bailout of financial institutions battered by bad mortgages and a loss of investor confidence. In Mr. Paulson's original proposal -- called the Troubled Asset Relief Program -- he asked Congress for $700 billion to use to buy up mortgage-backed securities whose value had dropped sharply or had become impossible to sell. While Congress eventually gave him most of the authority he sought, Mr. Paulson ended up switching gears and using the money to make direct investments in troubled financial institutions instead.

As originally outlined, the government would have bought up toxic mortgage-backed securities at a premium over their current deflated values. By paying "hold to maturity'' prices, Mr. Paulson said, the government would provide troubled firms with an infusion of capital, reducing doubts about their viability and thereby restoring investor confidence.

The plan in its original form was quickly rejected by both Democrats and Republicans in Congress and was criticized by many economists across the political spectrum. Congress insisted on adding provisions for oversight, limits on executive pay for participating companies and an ownership stake for the government in return for its investments.

Even so, the plan proved to be strikingly unpopular with an outraged public, and on Sept. 29 it failed in the House of Representatives, primarily from a lack of Republican support. But as the markets continued to plunge, a slightly altered version won the support first of the Senate, on Oct. 1, and of the House, on Oct. 3. President Bush quickly signed the bill.

Shortly afterward, Mr. Paulson reversed course, and decided to use the $350 billion in the first round of funds allocated by Congress not to buy toxic assets, but to inject cash directly into banks by purchasing shares, an approach that many Congressional Democrats had pushed for earlier. In an initial round of financing, nine of the largest banks were given $25 billion apiece.

The Treasury also used the bailout to steer funds to stronger banks to purchase weaker ones. To the dismay of many economists, no strings were attached to the Treasury infusions, and many of the banks appeared to be using the funds to bolster their balance sheets rather than to make new loans.

On Nov. 12, Mr. Paulson announced that he was abandoning the idea of asset purchases, and said the bailout money would be used instead for a broader campaign to bolster the financial markets and help consumers seeking loans for cars or tuition and other kinds of borrowing.

To the anger of many Democratic members, none of the first round was used to prevent further increases in foreclosures. An oversight panel created by the original bailout bill also delivered a round of stinging criticisms in its first report, delivered Dec. 10. The report said that the Treasury had failed to create a system to track how bailout funds were being used or to require that banks use them to increase lending and unfreeze credit markets.

The last big chunk of the first round funds ended up going to Detroit, in $17.4 billion in emergency loans to keep General Motors and Chrysler afloat. President Bush had initially rebuffed Democratic efforts to use the financial bailout for that purpose, preferring to redirect loan guarantees meant to help factories switch to building more fuel-efficient cars. But after Senate Republicans blocked a bill that would have done that, Mr. Bush agreed to use TARP funds, while adding tough condtions for the car makers, their creditors and unions that mirrored much of what Senate Republicans had sought.

On Jan. 12, 2009, the White House said that President Bush, at President-elect Barack Obama’s urging, would ask Congress to release the $350 billion remaining in the bailout fund.

The decision to request the money before taking office reflected a calculation by Mr. Obama and his aides that it would be better to have both the incoming and outgoing presidents urging lawmakers to release the money, given the high level of anger and frustration on Capitol Hill over how the Bush administration has managed the bailout program.

In addition, Lawrence H. Summers, who will be Mr. Obama’s top economic adviser at the White House, wrote to promising a five-point plan ensuring the money would be used for lending or preventing further crises and not for “enriching shareholders and executives.” To that end, the Treasury Department would limit executive compensation for institutions receiving “exceptional assistance.”

The next day, Ben S. Bernanke, the Federal Reserve chairman, warned in a speech that more capital injections might be needed to further stabilize the financial system. The day after that, government officials confirmed that they were preparing to send a multibillion lifeline from the bailout fund's second round to the Bank of America, which received $25 billion in the first round as it struggled to absorb losses from assets it aquired in its purchase of Merrill Lynch.

On Jan. 16, the Senate voted 52-42 to release the second round of funds.

Costs and Tighter Rules Thwart Refinancings

As mortgage rates hit new lows every week, the number of homeowners seeking to refinance their homes has spiked to its highest level in five years.

But many have been unable to win approval for their applications. And even some of the homeowners who do qualify have backed off, once they found out how difficult it was to get the advertised rate.

So what should be a bright spot in an otherwise dismal economy — throngs of homeowners locking in low, fixed-rate mortgages that will free them up to spend elsewhere — threatens to become another example of how even the best government intentions do not always pan out.

That was the case when the government, through its Troubled Asset Relief Program, started pumping money into banks with the goal of shoring up their balance sheets and spurring lending. And it appears to be happening again as the Federal Reserve buys up mortgage securities. The Fed is pushing down interest rates, but that has not been enough to bring the housing market back to life.

While rates are falling, borrowers face higher costs every step of the way, from rising fees for mortgage insurance to added costs that drive up the mortgage rate. At the same time, lenders have become more cautious about whom they will lend to, as more people lose their jobs, watch their incomes decline and fall behind on their bills.

One of the biggest stumbling blocks for many people is their plunging property values, which have erased all or most of the equity in their homes. Others cannot meet the increasingly stringent credit requirements, which either disqualify them or increase their costs.

“Refinancing is a very difficult proposition right now,” said Mike Stoffer, president of Stoffer Mortgage in North Canton, Ohio. “The loss of equity and tighter credit standards are making it difficult for a lot of people to refinance.”

Major banks and mortgage brokers agree that the number of qualified borrowers has dropped significantly. By some brokers’ estimates, only 30 percent of applicants in certain markets are actually closing on their refinancing applications. In contrast, in the first half of last year, about 60 percent of applications were approved, according to the Mortgage Bankers Association.

And only a select few borrowers with pristine credit can secure the most attractive rates: for the week that ended Jan. 15, rates on a 30-year fixed mortgage sank to 5.12 percent, the 11th consecutive weekly drop and the lowest rate since the big mortgage financer Freddie Mac began tracking them in 1971.

Earlier in this decade, during the real estate boom, many borrowers purchased their homes with little or no money down, meaning that even a small drop in value could wipe out any home equity. Even homeowners who initially put down 20 percent or more have seen the value of their stake fall. As a result, many homeowners need to come up with a pile of money, essentially a new down payment, to raise their equity to at least 20 percent. Otherwise they have to buy private mortgage insurance.

Alternatively, consumers could just buy the mortgage insurance. But getting the insurance is no longer simple. Private mortgage insurers, which incurred large losses when the housing market collapsed, have become much more selective. They also are charging more for their service. Even if a borrower does qualify for insurance, the increased costs often wipe out any savings from refinancing, mortgage brokers said.

In Arizona, California, Florida and Nevada, housing markets that are hardest hit, at least two insurers are now requiring borrowers to have at least 10 percent equity in their homes and a credit score of more than 720. About 48 percent of Americans have scores less than 699, according to Fair Isaac, the company that computes FICO credit scores.

In other markets, the insurers are requiring a credit score of at least 680 — an indication of how the definition of a good credit score has changed as the economy has deteriorated.

On top of that, Fannie Mae and Freddie Mac, the two big mortgage guarantors now under government control, have raised the fees they charge lenders on loans that they insure or buy. Those fees — in part the result of the two agencies’ losses in the housing market — are passed on to borrowers, with Fannie’s latest increase about to go into effect.

While the agencies have always charged more for mortgages for riskier borrowers, their fee structure has steadily risen over the last year. Applicants with credit scores above 720 and equity of more than 20 percent in their homes still generally escape these fees. Other applicants may qualify for refinancing but must pay the higher costs. ll borrowers pay a fee known as an “adverse market delivery charge” of 0.25 to 0.50 percent of the loan amount. Fannie, for example, also imposes a fee of 0.75 percent on owners of a condominium or cooperative apartment with less than 25 percent equity. Borrowers with a home equity loan or line of credit may pay another Fannie charge of up to 0.50 percent, depending on a variety of factors. And borrowers who want to take cash out of their homes when they refinance — if they have enough equity — are charged a fee ranging from 0.25 percent to 3 percent of the loan amount, depending on their credit score and amount of home equity.